The
question in this case boils down to a simple issue: Who is
the beneficiary of a lawsuit stemming from an ERISA
employee's misfortune? Is it the ERISA plan or is it the
unfortunate employee? While the all or nothing propositions
asserted by both parties here are not reasonable
interpretations of the ERISA plan in question, the facts of
this case favor the plaintiff. The defendant's
shortcoming, among other mistakes, was to prioritize its plan
interpretation to its financial interest.

Unum
Group Corporation ("Unum"), the defendant here,
argues that it is entitled to offset its disability payments
for lost income against every penny recovered because of the
employee's misfortune. The unfortunate victim of medical
malpractice in this case, the plaintiff Dawn Rustad-Link
("Rustad-Link"), argues there should be no offset
because her below-the-knee amputation settlement was not for
lost income, but encompassed a multiplicity of other damages
that are not subject to the ERISA plan's offset
provisions. Unum insists that it payed disability benefits
regardless of the basis of the claim, whether in this case
multiple sclerosis, below-the-knee amputation, or a variety
of other medical problems that impact Rustad-Link's
entitlement to disability benefits. This being the case, so
goes the reasoning, it is entitled to an offset against the
entirety of the proceeds of Rustad-Link's medical
malpractice settlement.

Rustad-Link's
motion for summary judgment is granted as the reasoning
supporting it is more persuasive. First, Washington law
mandates a de novo standard of review. Second, Unum
cannot assert the attorney-client privilege against
Rustad-Link, its fiduciary, as to communications with counsel
that occurred before the parties became adverse. Finally,
Unum breached its fiduciary duty to Rustad-Link when it
changed her disabling diagnosis following notice of her
third-party settlement and deducted against her disability
payments.

BACKGROUND

Rustad-Link
is a resident and citizen of Roseglen, Mclean County, North
Dakota. (Doc. 11 at 2.) At all times relevant to this action,
she was an employee, or disabled former employee, of
Defendant Providence Health and Services at Providence Saint
Joseph Medical Center in Poison, Montana
("Providence"). (Id.) Providence is the
policyholder of a long term disability insurance plan, Policy
Number 138177002 (the "Plan"). (Doc. 16-3 at 43; AR
000043.)[1] Unum is the disability insurance
underwriter for the Plan, (Doc. 16-3 at 000003), and is the
claims fiduciary for the Plan, (Doc. 16-3 at 56; AR 000056).
As a private, employer-provided plan, the Plan is governed by
the Employee Retirement and Income Security Act
("ERISA"). 29 U.S.C. §§ 1001 et
seq.

I.
Coverage History

Rustad-Link
was diagnosed with multiple sclerosis ("MS") in
1996. (Doc. 16-8 at 98; AR 000714.) In 2010, she suffered a
below-the-knee amputation resulting from negligent medical
care. (Doc. 16-5 at 2-4; AR 000152-54.) The amputation
occurred after an occlusion in her iliac artery blocked blood
flow to her foot. She applied for disability benefits under
the Plan, and Unum informed her on June 16, 2010, that her MS
was a pre-existing condition that would not be covered for a
period of 12 months.[2] (Doc. 26 at ¶ 3; AR 000156-57.)

On June
21, 2010, Rustad-Link responded that the amputation, not the
MS, had disabled her. (Doc. 16-5 at 8-9; AR 000158-59.) She
stated in part that "multiple sclerosis is not the
reason for filing this claim .... This amputation is the
reason for the disability claim." (Id.)

On June
11, 2010, Judith L. Gustafson, a certified nurse
practitioner, identified MS as Rustad-Link's primary
disability, her amputation as her secondary disability, and
recorded her assessment in an Unum disability claim form.
(Doc. 16-4 at 113-15; AR 000113-15.) She noted Rustad-Link
had severe weakness and tremors, and that her disability was
likely permanent. (Id.) On June 14, 2010, in a
separate evaluation, Daniel Ramsch, M.D., identified the
amputation as the primary disability, the MS as secondary,
and also indicated Rustad-Link's disability was likely
permanent. (Doc. 16-5 at 2-5; AR 00152-54.)

On
September 7, 2010, an Unum claim director, Tom Salce, held a
round-table review of Rustad-Link's file to determine
approval of her long-term disability. (Doc. 16-8 at 22; AR
000637.) The review confirmed disability due to the
amputation, and indicated recovery "would be 4-6 months
from present as [claimant] indicated she is still cleaning
wound." (Id.) It also noted it was
"[u]nclear what [Rustad-Link's] work capacity will
be as she also has MS, " and that it was "[n]ot
clear why [restrictions and limitations] for
[Rustad-Link's] [right upper extremity]" existed.
(Id.) Also on September 7, 2010, Unum granted
Rustad-Link's request for Long Term Disability benefits.
(Doc. 16-8 at 30; AR 000646.) The letter notifying
Rustad-Link did not explain what condition or conditions
supported its disability determination. (Id.)

On
February 28, 2011, Unum received an updated physician's
statement from Rustad-Link's primary care provider,
certified nurse practitioner Michelle Hellwig, which once
again identified her amputation as the primary disability and
MS as the secondary disability. (Doc. 16-12 at 134-36; AR
001350-52.) On March 3, 2011, Unum had another round-table
review and noted that Rustad-Link's restrictions and
limitations were medically supported but that "fine
motor skills [were] not supported since [Rustad-Link] had
mild tremors prior to [the amputation]." (Doc. 16-12 at
146; AR 001362.) Hellwig provided Unum another attending
physician's statement on September 14, 2011, which also
indicated the amputation was the primary cause of disability,
with MS and chronic pain as secondary diagnoses. (Doc. 16-13
at 53-55; AR 001419-22.) The assessment noted "pain,
limp, [and] tremors" as clinical findings supporting the
diagnosis. (Id.) On November 18, 2011, Unum held
another round-table review, concluding that Rustad-Link's
"[injury causing disability] should be updated to
reflect [below knee amputation] and MS as secondary."
(Doc. 16-13 at 119; AR 001485.) Rustad-Link was not notified
of the change. (Doc. 26 at ¶ 11.)

Unum
wrote Rustad-Link on November 21, 2011, to inform her that,
beginning in August 2012, her coverage would be subject to a
stricter definition of disability as she reached 24 months of
payments. (Doc. 16-14 at 36-38; AR 001554-56.) Unum received
an Attending Physician's Statement from neurologist
Stephen Johnson[3] on August 21, 2012, which identified MS as
the primary disability diagnosis, and did not identify any
other causes of disability. (Doc. 16-14 at 147-49; AR
001665-67.) Unum prepared a summary of Rustad-Link's
condition on September 14, 2012, noting she had been awarded
Social Security disability for her amputation and her MS, and
that a vocational rehabilitation consultant noted it might be
possible to identify light or sedentary employment. (Doc.
16-15 at 37; AR 001705.) Unum determined Rustad-Link's
"Injury Causing Disability" should be updated to
MS. (Id.)

On
October 7, 2012, Helwig provided another attending
physician's statement, which again stated
Rustad-Link's primary disability diagnosis impacting
functional capacity was her amputation, and that secondary
diagnoses were MS and chronic pain. (Doc. 16-15 at 71-74; AR
001739-42.) Unum held another round-table review on October
22, 2012, in which Rustad-Link's medical history was
reviewed, and concluding that Rustad-Link's restrictions
and limitations regarding her upper extremities due to MS,
the poor labor market in North Dakota (where she had moved),
and the likelihood that her conditions would deteriorate
qualified her for continued long-term disability. (Doc. 16-15
at 101-02; AR 001769-70.) The review also concluded
Rustad-Link's injury causing disability should be updated
to MS. (Id.) Unum informed Rustad-Link that
continuation of her disability payments under the stricter
definition of disability had been approved that same day.
(Doc. 16-15 at 116-18; AR 001784-86.) Unum did not advise
Rustad-Link that her injury causing disability had been
updated to MS. (Id.)

II.
The Settlement Deduction

On
February 14, 2014, Rustad-Link's attorney informed Unum
of a pending third-party settlement regarding her amputation.
(Doc. 16-17 at 110-11; AR 000283-84.) Unum responded with a
letter asserting a right to recover benefits as deductible
sources of income under the Plan. (Doc. 16-17 at 137; AR
002118.) Unum then began the process of assessing whether
Rustad-Link's settlement would qualify as a deductible
source of income. (Doc. 16-17 at 135; AR 002116.) On August
19, 2014, Unum sent another letter, requesting information
regarding Rustad-Link's settlement. (Doc. 16-17 at
141-42; AR 002122-23.)

Rustad-Link's
attorney wrote back on September 15, 2014. (Doc. 16-17 at
145-46: AR 0021 26-27 "l The letter informed T Tnnm that
Rnstad-T ink's settlement was solely on the basis of her
amputation, and did not involve any recovery for her MS.
(Id.) Following receipt of that letter, Unum
consulted in-house counsel and initially concluded that the
settlement would not qualify for application of the third
party settlement offset because it would represent attorney
fees and past and future medical expenses. (Doc. 11 at ¶
29; Doc. 3-28.)[4] Unum also concluded that a medical review
was not necessary. (Doc. 3-29.) Despite these conclusions,
Unum's Financial Recovery Unit then initiated an
evaluation of Rustad-Link's injury causing disability to
resolve whether Unum would "be supporting the claim for
MS despite the amputation." (Doc. 16-18 at 12; AR
002146.)

On
November 5, 2014, Unum concluded that "[t]here is no
indication at this time that [Rustad-Link's] MS
[symptoms] have worsened to suggest that they rise to the
level that would impact [her] functional capacity. Any
support for decrease in function appears to be related to her
[amputation]. It does not appear that [she] had an MS
exacerbation sepsis and [amputation], and her [symptoms]
increase was more likely to her noncompliance with
medication. [Injury Causing Disability]: Need to switch
[Injury Causing Disability]." (Doc. 16-18 at 27; AR
002167.) Unum subsequently informed Rustad-Link that "MS
is not a basis for [Rustad- Link's] disability and that
she is impaired only as a result of her below-the-knee
amputation. This condition alone causes her current inability
to work in any gainful occupation." (Doc. 16-18 at
30-31; AR 002171-72.) Unum informed Rustad-Link that as a
result of her third-party settlement, Unum had overpaid
benefits in the amount of $46, 856.28, and that it would
begin reducing her payments by the monthly amount of $1,
924.60, resulting in a monthly payment of $115.71. (Doc.
16-18 at 35-36; AR 002176-77.)

Rustad-Link's
attorney responded December 2, 2014, noting that Unum's
position "ignore[d] the unambiguous medical opinions of
all providers that the MS and the amputation combine to
render her disabled." (Doc. 16-18 at 43; AR 002184.) The
letter also disputed the pro-ration of the lump sum
settlement for life long losses, which it asserted should
have been calculated over Rustad-Link's life expectancy
instead of her work-life. (Id.) In a December 10,
2014 letter, Unum responded that it was "not required
under the policy to apportion a deductible source of income
with respect to the disabling diagnostic condition associated
with that source of income, " and that "the third
party settlement. .. [would] be considered a deductible
source of income for the duration of [Rustad-Link's]
claim." (Doc. 16-18 at 55; AR 002199.) On January 7,
2015, Unum sent a follow-up letter notifying counsel that it
had begun to reimburse itself for the
"overpayments" by deducting from Rustad-Links'
monthly disability payments, and that Rustad-Link
"w[ould] not receive a benefit payment until the
overpayment [was] paid in full." (Doc. 16-18 at 70-72;
AR 002215-17.) Rustad-Link timely appealed the decision with
Unum on June 30, 2015. (Doc. 16-18 at 119; AR 002267.) Unum
denied the appeal on July 14, 2015. (Doc. 16-18 at 1 BOSS; AR
002281-84.) Unum again asserted the Plan did not require it
"to consider an apportionment of the settlement with
respect to the disabling condition(s) associated with th[e]
deductible source of income." (Doc. 16-18 at 131; AR
002282.)

III.
The Present Case

Rustad-Link
filed suit on October 20, 2016. (Doc. 1.) She claims
Unum's assertion of the offset and repayment provisions
constitute a breach of the terms of the Plan and a wrongful
refusal to pay the benefits due, in violation of ERISA, 29
U.S.C. § 1132(a)(1)(B) and (a)(3). (Doc. 3 at 15.) She
seeks an award of all disability benefits available under the
Plan, including reimbursement for past benefits wrongly
withheld, prejudgment interest, costs, and attorney's
fees. (Doc. 3 at 16.) Both parties have moved for summary
judgment, and agree that resolution of this matter is
appropriate on the administrative record. (Docs. 17, 24).

Standard

A party
is entitled to summary judgment if it can demonstrate that
"there is no genuine dispute as to any material fact and
[it] is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). Summary judgment is warranted where the
documentary evidence produced by the parties permits only one
conclusion. Anderson v. Liberty Lobby, Inc., 411
U.S. 242, 251 (1986). Only disputes over facts that might
affect the outcome of the lawsuit will preclude entry of
summary judgement-factual disputes that are irrelevant or
unnecessary to the outcome are not considered. Id.
at 248. "[W]hen parties submit cross-motions for summary
judgment, each motion must be considered on its own
merits." Fair Hous. Council of Riverside Cty., Inc.
v. Riverside Two,249 F.3d 1132, 1136 (9th Cir. 2001)
(internal quotation marks and alteration omitted).

Analysis

I.
Standard of Review

A
threshold question here involves the standard of review
regarding Unum's decision to offset against
Rustad-Link's personal injury settlement. Rustad-Link
insists de novo review should be applied, (Doc. 19
at 18), while Unum argues abuse of discretion is the
appropriate standard of review, (Doc. 25 at 5). Rustad-Link
has the better argument, although, as discussed below, the
outcome is the same under either standard.

The
Supreme Court has held that "a denial of benefits
challenged under § 1132(a)(1)(B) is to be reviewed under
a de novo standard unless the benefit plan gives the
administrator or fiduciary discretionary authority to
determine eligibility for benefits or to construe the terms
of the plan." Firestone Tire & Rubber Co. v.
Bruch,489 U.S. 101, 115 (1989). The Unum Plan contains
a "discretionary clause, " which provides as
follows:

The Plan, acting through the Plan Administrator, delegates to
Unum and its affiliate Unum Group discretionary authority to
make benefit determinations under the Plan. Unum and Unum
Group may act directly or through their employees and agents
or further delegate their authority through contracts,
letters or other documentation or procedures to other
affiliates, persons or entities. Benefit determinations
include determining eligibility for benefits and the amount
of any benefits, resolving factual disputes, and interpreting
and enforcing the provisions of the Plan. All benefit
determinations must be reasonable and based on the terms of
the Plan and the facts and circumstances of each claim.

(Doc. 16-3 at 59; AR 000059.)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Ninth Circuit "read[s] Firestone to require
abuse of discretion review whenever an ERISA plan grants
discretion to the plan administrator, but a review informed
by the nature, extent, and effect on the decision-making
process of any conflict of interest that may appear in the
record. This standard applies to the kind of inherent
conflict that exists when a plan administrator both
administers the plan and funds it, as well as to other forms
of conflict." Abatie v. Alta Health & LifeIns. Co.,458 F.3d 955, 967 (9th Cir. 2006). In
other words, "[a] district court, when faced with all
the facts and circumstances, must decide in each case how
much or how little to credit the plan ...

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